Sarbanes-Oxley Act (SOX)
Whistleblower Digest


[Last Updated May 3, 2012]

Table of Contents

[ This division of the SOX Digest relates to the issue of whether attorney-client privilege, or the existence of a non-disclosure agreement, are bars to a SOX whistleblower complaint. For decisions relating to sealing the record and protective orders, see Protection of Information; Privacy; Confidentiality ]

Attorney-Client Privilege

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In Van Asdale v. International Game Technology , No. 07-16597 (9th Cir. Aug. 13, 2009), the Defendant-Appellee argued that the court should affirm summary judgment against the Plaintiffs-Appellants, who were both licensed as attorneys solely in Illinois, because (1) they allegedly were prohibited from maintaining the action under their ethical obligations as Illinois-licensed attorneys and (2) notwithstanding the particular requirements of Illinois law, they could not establish their claim without using attorney-client privileged information. The court found that Illinois law does not bar retaliation suits by in-house attorneys where the suit is based on non-Illinois law.

oreover, the court held that confidentiality concerns alone did not warrant dismissal of the Plaintiffs-Appellants' claims. The court did not find it clear to what extent the lawsuit would actually require disclosure of the Defendant-Appellee's confidential information. The court found that the district court could limit any testimony regarding the meeting in which the allegedly privileged discussion took place to the question of whether the Plaintiffs-Appellants' raised claims of shareholder fraud, while avoiding testimony regarding any litigation-related discussions that also took place. The court found that "[t]o the extent this suit might nonetheless implicate confidentially-related concerns 'the appropriate remedy is for the district court to use the many 'equitable measures at its disposal' to minimize the possibility of harmful disclosures, not to dismiss the suit altogether." Slip op. at 11074, citing Kachmar v. SunGard Data Systems, Inc. , 109 F.3d 173, 182 (3d Cir. 1997).

The court also found that the text and structure of SOX does not indicate that in-house counsel arer not also protected from retaliation, noting that Section 1514A(b) expressly authorizes any "person" alleging discrimination based on protected conduct to file a complaint with the Secretary of Labor and, thereafter, to bring suit in an appropriate district court. The court found that "Congress plainly considered the role attorneys might play in reporting possible securities fraud. See, e.g. , 15 U.S.C. § 7245." Slip op. at 11074-11075.


In Curtis v. Century Surety Co. , No. 08-16236 (9th Cir. Mar. 23, 2009) (unpublished), the Ninth Circuit affirmed the District Court's ruling in Curtis v. Century Surety Co. , No. CV 05-1538 (D.Ariz. Aug. 24, 2006), granting summary in favor of the Defendant on the Plaintiff's SOX whistleblower claim because the Complainant did not fulfill the exhaustion requirements of 18 U.S.C. § 1514A(b). The Ninth Circuit found that the Plaintiff had conceded that had not exhausted; the Ninth Circuit rejected the argument that being an attorney exempts the Plaintiff from doing so in this case.

The District Court's decision contains more detail about the Plaintiff's position: that the statutory exhaustion requirement "do[es] not apply because compliance would require him to breach his fiduciary duty to Defendant and require him to divulge information subject to the attorney-client privilege in violation of the Ethics Rules of the State Bar of Arizona." This District Court found that the only authority cited by the Plaintiff, a California State Bar Ethics Alert and Washington State Bar Opinion reminding lawyers that they remain bound by the ethical rules of conduct surrounding breach of attorney-client confidences despite the passage of disclosure requirements under SOX, only related to individuals divulging privileged information, not merely information deemed confidential by an employer, and that the Plaintiff had not established how the information upon which he would have relied would have been privileged, or that the purported privileged information would have been necessary to the administrative complaint. The District Court found that Congress recognized in the SOX that there would be circumstances in which attorney employees would be whistleblowers regarding violations of securities laws, but did not create exceptions for attorneys.


In Sokol v. Wyeth, Inc. , No. 07-cv-08442 (S.D.N.Y. Aug. 4, 2008), a SOX whistleblower case that had been removed from the DOL to district court, the Defendants filed a request for production of all documents evidencing all communications between the Complainant and another former employee of the Defendant, who was also represented by the Complainant's attorney. In addition to a claim that the request was overbroad and burdensome, the Plaintiff objected that the information was protected by the "common claims privilege." The court rejected the claim that the request was overbroad and burdensome, and then turned to the privilege claim. The court explained that the attorney-client privilege may be waived by the voluntary disclosure of otherwise privileged material to a third party, unless the third party is the client's agent. An exception to this rule is the "common interest" doctrine, which "precludes waiver of the underlying privilege concerning confidential communications between parties' made in the course of an ongoing common enterprise and intended to further the enterprise' irrespective of whether an actual litigation is in progress." Slip op. at 9-10 (citations omitted). The doctrine is not an independent source of privilege; if a communication is not protected by the attorney-client privilege or the attorney work-product doctrine, the common interest doctrine does not apply.

The Complainant stated that when he first retained his attorney, the attorney explained that the other client had become experienced with how the SOX applies to their common employer, and that both their claims involved a common product and had other similarities. The attorney explained that both could testify in the other's case and share evidence gathered through depositions and discovery. The Complainant agreed to the arrangement, and he and the other employee started communicating about their respective cases. According to the Complainant, the other employee was engaged as a "consultant" to the law firm for the purposes of helping to re-write his complaint as to technical and legal issues. The Plaintiff asserted that the other employee was his counsel's "consultant" and that by including the counsel's e-mail address in his communications with the other employee, he established his intend that the communications with the other employee would be protected by attorney-client privilege.

The court rejected the proposition that copying an attorney on an e-mail between a client and a third-party client by itself triggers attorney-client privilege. Moreover, if the communication was seeking the consultant's services or if the advice sought was not that of the attorney but that of the consultant, the attorney-client privilege does not apply. Reviewing the e-mail communications in camera, the court ultimately found that the attorney-client privilege was not applicable to any of the communications between the Plaintiff and the other employee, the purpose of which was not obtaining advice from the Plaintiff's attorney.


In Van Asdale v. International Game, Technology , No. 3:04-CV-00703-RAM (D.Nev. June 13, 2007), the Magistrate Judge held that attorney-client privilege was not a bar to the Plaintiffs' SOX claims. The Plaintiffs were in-house attorneys for the Defendant. The Magistrate Judge noted that few federal courts had addressed whether privileged information may be used by a former in-house counsel in a wrongful termination or similar suit, but that the Fifth Circuit had discussed this issue in Willy v. Administrative Review Bd. , 423 F.3d 483, 495 (5th Cir. 2005), and had allowed the plaintiff to use the privileged information in pursuing his whistleblower claim. The Magistrate Judge found that Willy was not precisely on point because it was decided in the context of whistleblower claims before an ALJ rather than a jury. Because the Ninth Circuit had not considered the issue, the Magistrate looked to the Third Circuit decision in Kachmar v. Sungard Data Systems, Inc. , 109 F.3d 173 (3rd Cir. 1997), for guidance. The Magistrate agreed with that authority that concerns regarding disclosure of client confidences do not standing alone warrant dismissal of a plaintiff's case, especially where there are other means to prevent unwarranted disclosure of confidential information. The Magistrate further took into consideration ABA Model Rule 1.6(b)(5), and the identical Nevada rule, and the public policy advanced by SOX. He ruled that offensive use of privileged information would be appropriate in the instant case.



In Gloss v. Marvell Semiconductor, Inc. , ARB No. 10-033, ALJ No. 2009-SOX-11 (ARB Jan. 13, 2010), the Respondent sought an interlocutory review of the ALJ's order to produce interview memoranda that counsel for the Respondent's Board of Directors prepared in connection with internal investigations they conducted, in which the ALJ ruled that to the extent that the memoranda were used in the internal investigation, the Respondent had waived any attorney-client privilege and work product doctrine objections relating to the memoranda. The Respondent argued that the order was reviewable under the collateral order doctrine exception to the finality rule. The ARB denied the motion, applying the Supreme Court decision in Mohawk Indus., Inc. v. Carpenter , 130 S.Ct. 599, 609 (2009), in which the court determined that "collateral order appeals are not necessary to ensure effective review of orders adverse to the attorney-client privilege." The ARB also noted that in Jordan v. Sprint Nextel Corp. , ARB No. 06-105, ALJ No. 2006-SOX-41 (ARB Sept. 30, 2009), it had held that "a SOX complainant may rely on statements or documents covered by the attorney-client privilege, as an exception to the privilege, in support of a [SOX Section 806 complaint]." The ARB held that, in light of its ruling in Jordan , the Respondent's petition failed regardless of whether it was grounded in the collateral order doctrine or the "controlling question of law" variety of petition for review. The ARB, however, noted the ALJ's discretion to issue such protective, in camera, or other orders as needed to protect privileged communications.


In Jordan v. Sprint Nextel Corp. , ARB No. 06-105, ALJ No. 2006-SOX-41 (ARB Sept. 30, 2009), the ARB ruled that an in-house, attorney-complainant may rely on statements or documents covered by the attorney-client privilege in support of a SOX Section 806 whistleblower complaint.

The ARB noted that DOL's rules governing SOX whistleblower complaints provide that the hearings are to be conducted in accordance with the ALJ rules of practice and procedure at 29 C.F.R. Part 18, and that section 18.501 provides that, except as otherwise required by law, privileges shall be governed by the federal common law. The ARB then noted that SOX Section 307 required the SEC to issue rules on attorney conduct before the SEC, and that SEC consequently implemented rules at 17 C.F.R. Part 205. Those rules require an attorney to report evidence of a material violation by the issuer to the chief legal counsel or chief executive officer, or if that is unsuccessful, to the audit committee of the board of directors. The SEC rules permit an attorney to use any Part 205 report or response thereto in any investigation, proceeding or litigation in which the attorney's compliance with SOX Section 307 and its implementing regulations is in issue, and to report a reasonable belief of a discharge based on such a report to the issuer's board of directors or any committee thereof. The ARB also reviewed its own decision in Willy v. The Coastal Corp. , ARB No. 97-107, ALJ No. 1985-CAA-1 (ARB Feb. 27, 2004), and the 5th Circuit's later decision overruling the ARB in Willy v. The Coastal Corp. , 423 F.3d 483 (5th Cir. 2005). The ARB noted that the ALJ had relied on court's Willy decision to find that federal common law governs questions of privilege in the instant context, and that the ABA Model Rules supported the conclusion that the Complainant was not precluded from relying on statements or documents covered by attorney-client privilege in pursuit of his SOX whistleblower complaint. The ALJ emphasized that Congress has created in SOX a statute that requires attorneys to report violative conduct, and had at the same time created whistleblower protection that did not except attorneys.

In its analysis, the ARB found two factors not present in Willy that led it to a different conclusion from the one it had reached in Willy . First, the ARB found that it would defer to the SEC's regulations and interpretative guidance to the extent that they would permit the Complainant to use otherwise privileged matters. Second, the SOX contains both a mandatory reporting requirement for attorneys (Section 307) and a whistleblower protection section (Section 806), which should be read together to provide a remedy. The ARB looked to the SEC's comments in the promulgation of its attorney conduct rules to find that section 205.3(d)(1) is the effective equivalent of ABA Model Rule 1.6(b)(3) (now numbered 1.6(b)(5)), which allows an attorney to use attorney-client privileged material to establish a retaliatory discharge claim against the attorney's employer. Because the OALJ rule at 29 C.F.R. 18.501 gives an ALJ the authority to follow the SEC privilege rule at 17 C.F.R. 205.3(d)(1), the ARB found it unnecessary to either non-acquiesce or follow the Fifth Circuit's decision in Willy . The ARB agreed with the ALJ that the SOX reporting requirement for attorneys together with whistleblower protection in the same statute is strong evidence that Congress intended that such attorneys would be protected in reporting violations, and can use otherwise privileged materials in whistleblower proceedings "subject to protective, in camera, or other orders the ALJ may issue with the objective of protecting privileged communications." See 29 C.F.R. 18.46(a).



In Jordan v. Sprint Nextel Corp. , 2006-SOX-41 (ALJ Mar. 14, 2006), the Complainant was, prior to discharge, an attorney in the Respondent's Corporate Secretary and Corporate Governance groups, and had primary responsibilities that included ensuring compliance with securities law. The Respondent filed a motion to dismiss/motion for summary decision, arguing that the Complainant's complaint was based on a personal grievance against his supervisor, and that the complaint "should be dismissed because he cannot prove any set of facts that would entitle him to relief without recourse to confidential and privileged information and communications resulting from his position as an attorney for Sprint." Slip op. at 8, quoting Respondent's Motion to Dismiss. Alternatively, the Respondent argued that summary judgment was appropriate on the theory that the Complainant could not present a material issue of fact without relying on confidential and privileged information, and therefore he cannot establish the existence of an element essential to his claim.

The ALJ denied the motion. First, he found that the Respondent had failed to properly assert, and thus could not rely on, attorney-client privilege where it had failed to identify any specific communication to which the privilege applied. Second, the ALJ found that the Respondent had misplaced reliance in respect to its motion on the decision of the ARB in Willy v. The Coastal Corp. , ARB No. 98-060 (Feb. 27, 2004), despite the Fifth Circuit's reversal of that decision in Willy v. Admin. Rev. Bd. , 423 F.3d 483 (5th Cir. 2005), based on a theory of nonacquiescence. The ALJ noted that the Fifth Circuit had, when it remanded Willy to the ARB, vacated the earlier ARB decision. Since the ARB had not yet ruled on remand, the original ARB decision was neither valid nor binding authority. The ALJ noted that he had not been cited any other decision mandating dismissal of a whistleblower complaint where it was predicated, in whole or in part, on information subject to attorney-client privilege. Whether the ARB would choose to engage in "nonacquiescence" was simply speculation. Moreover, the ALJ found that the Fifth Circuit's decision was well reasoned, consistent with other legal authority, and dispositive of the issues raised in the Respondent's motion. The ALJ concluded that where an in-house attorney is alleging that he was discharged in retaliation for disclosing what he reasonably believed to be violations of law governed by a federal whistleblower statute, and the ability to prove the case is dependent on access to, and use of, statements and documents generated during the course of his professional endeavors on behalf of his employer, the complainant is entitled to use and rely on such communications in support of his claim. Thus, the ALJ found that the Complainant in the instant case was not precluded from relying on statements or documents covered by the attorney-client privilege in pursuit of his SOX claim; however, the ALJ admonished the Complainant "to take care not to disclose such information beyond that reasonably necessary to establish his claim" and ruled that "at least at this juncture, the parties' pleadings filed in this case must remain sealed." Slip op. at 14. Finally, the ALJ granted the Respondent's motion to certify the issue to the ARB for interlocutory review.


In Welch v. Cardinal Bankshares Corp. , 2003-SOX-15 (ALJ Aug. 1, 2003), Complainant asked that Respondent be required to produce for the ALJ's in camera inspection minutes of joint meetings of several Audit Committees, asserting that nearly fifty percent of the text of the minutes produced by Respondent during discovery were redacted based on Respondent's assertion of the attorney-client privilege. Respondent had merely inserted "redacted-attorney client privilege" in the blank portions of the documents. The ALJ wrote:

    The Fourth Circuit, in whose jurisdiction this case arises, has adopted the "classic test" for determining the existence of the attorney-client privilege:

"The privilege applies only if (1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client."

United States v. Jones , 696 F.2d 1069, 1072 (4th Cir.1982) (quoting United States v. United Shoe Machinery Corp ., 89 F.Supp. 357, 358-59 (D.Mass.1950)). "The burden is on the proponent of the attorney-client privilege to demonstrate its applicability." Jones , 696 F.2d at 1072.

    The insertion of "redacted-attorney client privilege" in the omitted portions of the Audit Committee meeting minutes is inadequate to meet Respondent's burden to demonstrate that the attorney-client privilege is applicable to the communications at issue. Respondent shall therefore submit to me for in camera inspection copies of the unredacted minutes of these meetings. Respondent shall also file with these documents such additional documentation and argument as is necessary to allow me to make an informed determination with respect to whether the privilege applies.

Thereafter, in Welch v. Cardinal Bankshares Corp. , 2003-SOX-15 (ALJ Aug. 15, 2003), the ALJ determined after in camera review that the privilege was not properly invoked because the communications in question did not include confidential client communications . Although two of Respondent's attorneys made statements before the Audit Committees, none of those statements contained confidential client communications made by Respondent. Rather, "the statements made by [the attorneys], in large part, consist of their descriptions of verbal and written communications made by or to Complainant , and actions taken by him , with respect to his concerns about alleged improprieties at the bank." Slip op. at 4 (italics as in original). The ALJ cited the applicable law, to wit:

    According to the U.S. Court of Appeals for the Fourth Circuit, in whose jurisdiction this case arises: "Because the privilege protects the substance of communications, it may also be extended to protect communications by the lawyer to his client, agents, or superiors or to other lawyers in the case of joint representation, if those communications reveal confidential client communications ." U.S. v. [Under Seal] , 748 F.2d 871, 874 (4th Cir. 1984) (italics added). The D.C. Circuit has adopted a similar rule. Relying on its decision in Mead Data Cent., Inc. v. United States Dep't of Air Force , 566 F.2d 242, 254 (D.C.Cir.1977), that court wrote: "[W]hen the attorney communicates to the client, the privilege applies [to the attorney's statements] only if the communication 'is based on confidential information provided by the client.'" Brinton v. Department of State , 636 F.2d 603, 603 (D.C. Cir. 1980).

The ALJ also ruled that disclosure of these communications regarding Complainant to a third party entity with which Respondent was then attempting to merge had not been established by Respondent not to constitute a waiver of the privilege if it existed.

Finally, the ALJ discussed whether Complainant, as Vice President and Chief Financial Officer of Respondent at the time of the pertinent meetings, was entitled to waive attorney-client privilege if it existed. The ALJ stated that arguably he was so entitled, but declined to decide this issue because the disclosures did not involve confidential client communications and because, even if they did, disclosures made to a third party waived the privilege.

Litigation Privilege

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In Levi v. United States of America , No. 12-CV-00635 (D.D.C. Apr. 23, 2012), the court dismissed the plaintiff's Federal Tort Claims Act complaint alleging that the United States Department of Labor interfered with or obstructed the plaintiff's various civil actions against his former employer, Anheuser Busch Companies, Inc., and complaints he submitted pursuant to the whistleblower provision ofthe Sarbanes-Oxley Act, 18 U.S.C. § 1514A. The court found, based upon review of the complaint and its attachments, that the alleged tortious conduct occurred when attorneys submitted false statements to the court in matters before the United States Courts of Appeals for the District of Columbia and the Eighth Circuit and before the Supreme Court of the United States. The court held that "[i]nsofar as the allegedly false statements were made in the context of litigation, judicial privilege bars plaintiff's claim." Slip op. at 2 (citations omitted).


In Morlan v. Qwest Dex, Inc. , __ F. Supp.2d __, 2004 WL 1900368 (D.Or. Aug. 25, 2004), the Plaintiff had brought an action under state law against her employer alleging that company officials had made defamatory statements about her during, inter alia , a DOL investigation of a Sarbanes-Oxley whistleblower complaint. Specifically, the employer's attorney had made statements in a letter to DOL as part of a defense against the SOX administrative complaint suggesting that the employer had fired the Plaintiff for "enhancement of data" and "falsification of documents." The court held that these statements were protected by an absolute privilege which applies to statements made to administrative agencies acting in a quasi-judicial capacity.

[Editor's note: Morlan did not originate in the Department of Labor.]

Non-Disclosure Agreements

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In JDS Uniphase Corp. v. Jennings , No. 1:06-CV-200 (E.D.Va. Feb. 5, 2007), the Plaintiff brought suit against the Defendant, a former employee, for breach of contract, breach of fiduciary duty, conversion, and violation of a state law on trade secrets. The Defendant counterclaimed for breach of employment contract and retaliatory discharge under the whistleblower provision of the SOX. The court granted summary judgment against the Defendant on his counterclaims.

The Defendant had signed a nondisclosure agreement. Because of questions about the Defendant's soundness of judgment relating to the unauthorized hiring of a temporary employee, and concerns that he was not able to work effectively on a team, which was a primary responsibility, the decision was made to terminate the Defendant's employment. However, before the termination was implemented the Defendant requested emergency medical leave under the FMLA. The next day, the Plaintiff received a letter from the Defendant's attorney asserting that the Defendant had been a victim of retaliation in violation of SOX. The Plaintiff investigated, and during the course of the investigation learned that the Defendant was in possession of numerous privileged and confidential company documents. The Plaintiff filed a motion for a preliminary injunction, which was granted, and the documents were delivered to the court, where they were the subject of the Plaintiff's breach of contract claim.

The court held that the Defendant was in clear breach of the nondisclosure agreement. The Defendant asserted, however, that the agreement was unenforceable as contrary to public policy under a proclamation of the California legislature encouraging the protection of employees reporting violations of laws enacted for the protection of corporate shareholders, investors, employees and the general public (the Plaintiff's corporate headquarters being located in California). Thus, the Defendant argued that the enforcement of the nondisclosure agreement would impede his assertion of a SOX claim. The court rejected this argument, holding that "[b]y no means can the [California legislature's statement of] policy fairly be said to authorize a disgruntled employee to pilfer a wheelbarrow full of an employer's proprietary documents in violation of their contract merely because it might help them blow the whistle on an employer's violations of law, real or imagined. Succinctly put, Sarbanes-Oxley is not a license to steal documents and break contracts." The court recognized that some authority recognizes that an employee might be justified in retaining documents or surreptitiously copying them if there was a sufficiently persuasive showing that the documents would be destroyed, but found no such showing in the instant case.

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